1 EXHIBIT 99.1 FOR IMMEDIATE RELEASE BERKSHIRE HILLS BANCORP, INC. ANNOUNCES RECORD SECOND QUARTER EARNINGS AND DECLARES QUARTERLY DIVIDEND EPS INCREASES 24% OVER SECOND QUARTER 2003; YEAR TO DATE EPS UP 34% PITTSFIELD, MA - July 22, 2004 - Berkshire Hills Bancorp, Inc. (the "Company"), (AMEX: BHL), the holding company for Berkshire Bank (the "Bank"), today reported net income of $2.7 million, or $0.47 diluted earnings per share, for the quarter ended June 30, 2004 as compared to $2.1 million, or $0.38 diluted earnings per share, for the quarter ended June 30, 2003. The diluted earnings per share for the three months ended June 30, 2004, represented an increase of 23.7% in diluted earnings per share compared to the same period in 2003. Net income for the first six months of 2004 was $5.3 million, or $0.93 diluted earnings per share, as compared to $4.0 million, or $0.69 diluted earnings per share, for the same period last year. The diluted earnings per share for the six months ended June 30, 2004 represented an increase of 34.8% in diluted earnings per share compared to the same period in 2003. Commenting on the Company's performance, Michael P. Daly, President and Chief Executive Officer stated, "I am pleased to report another record quarter for the Company. We have experienced strong growth in loans, wealth management fees and deposits, and we continue our commitment to asset quality and expense control. We continue to work to be the financial institution of choice in Berkshire County, our primary market. Yesterday we announced that the Bank signed an agreement to purchase its first branch in New York. This acquisition will enable us to seek regulatory approval to open additional branches in the Albany area and other New York communities adjacent to Berkshire County. " Strategic Actions On June 18, 2004 the Company announced the sale of the business assets of EastPoint Technologies, LLC ("EastPoint"), a software and data processing provider for financial institutions, to a subsidiary of Open Solutions Inc. (NASDAQ: OPEN). The Company owned 60.3 percent of EastPoint, which was recorded on the Company's financial statements at approximately $2.8 million. The transaction resulted in a net loss on sale of $75,000 to the Company ($49,500 net of taxes). The Company has the potential to receive up to an additional $750,000 in two years, which represents the Company's 60.3 percent share of a combined $1.25 million of escrowed and conditional payments. On July 12, 2004, the Bank opened a representative office in Albany, New York, initially for the purpose of offering commercial loans and related services. On July 21, 2004, the Company announced in an SEC filing that the Bank had entered into an agreement to acquire a branch in New York. This will permit the Bank to seek regulatory approval to open other branches in New York. The Company expects the transaction to be completed during the third quarter this year. Dividend Declared The Board of Directors declared a quarterly cash dividend of $0.12 per share, payable on August 20, 2004 to stockholders of record at the close of business on August 5, 2004. Second Quarter Highlights o Commercial loans increased $22.7 million, or 5.9%, from March 31, 2004. 2 o Consumer loans increased $7.4 million, or 4.5%, from March 31, 2004, with automobile loans increasing $7.0 million, or 6.3%. o Core deposits increased $8.1 million, or 1.6%, from March 31, 2004. o Trust assets under management increased $10.0 million, or 3.4%, from March 31, 2004. o Non-interest expense decreased $630,000, or 8.3%, from March 31, 2004. The following table represents a reconciliation of GAAP net income to core net income and EPS. In determining its core net income and earnings per share, the Company excludes net security gains and losses and what it believes to be non-recurring items. 2Q 2004 1Q 2004 2Q 2003 ------------- ----------- ----------- (In thousands, except per share data) Net income -GAAP $2,702 $2,623 $2,138 Plus: Non-recurring retirement benefit charge(1) -- -- 512 Non-recurring loss on the sale EastPoint (recorded in net loss from 50 -- -- discontinued operations) (2) Less: Gain on sale of securities, net(1) 256 221 203 REIT interest credit(1) -- -- 10 Income tax credit resulting from disallowance of REIT -- -- 244 Tax adjustment to arrive at effective tax rate -- -- 35 NET INCOME-CORE $2,496 $2,402 $2,158 Earnings per diluted share-core $ 0.44 $ 0.42 $ 0.38 Average diluted shares outstanding 5,725 5,757 5,687 (1) Tax effected using tax rates of 32.0% and 36.0% for 2004 and 2003, respectively. (2) Tax effected using a tax rate of 34.0%. Financial Condition Loans increased $33.8 million and $3.1 million from March 31, 2004 and December 31, 2003, respectively. The increase from March 31, 2004 was primarily due to increases of $22.7 million in commercial loans and $7.4 million in consumer loans. The increase in commercial loans was primarily in commercial real estate loans. The increase in consumer loans was primarily in indirect auto loans with average FICO scores over 700. The increase from December 31, 2003 was primarily due to increases of $33.0 million in commercial loans and $15.8 million in consumer loans, partially offset by the securitization of $38.7 million and the sale of $6.5 million of one-to four-family fixed rate mortgages during the first quarter of 2004. Securities decreased a total of $7.3 million from March 31, 2004 and increased $77.6 million from December 31, 2003. The decrease from March 31, 2004 was largely due to a decline in purchase activity in the current quarter as compared to the previous quarter, as the Bank directed increases in borrowings and deposits to fund loan growth. The increase from December 31, 2003 included the securitization of $38.7 million of one-to four-family fixed rate mortgages. Security purchases in the first quarter of 2004 were made to take advantage of a steep yield curve and were primarily in mortgage-backed securities with durations averaging 3.5 years with limited risk of durations extending, particularly in a rising rate environment. 2 3 Borrowings from the Federal Home Loan Bank were $321.7 million at June 30, 2004, an increase of $22.6 million and $70.3 million from March 31, 2004 and December 31, 2003, respectively, as the Bank took advantage of the low cost of borrowings to fund loan growth. Deposits increased $17.6 million from March 31, 2004 and increased $17.2 million from December 31, 2003. Core deposits (represented by demand, NOW, savings and money market accounts) were $522.1 million at June 30, 2004, an increase of $8.1 million, or 1.6%, and $13.2 million, or 2.6%, from March 31, 2004 and December 31, 2003, respectively. The Company's tangible book value per share at June 30, 2004, March 31, 2004 and December 31, 2003 was $19.81, $19.82 and $19.13, respectively. The slight decline from March 31, 2004 was primarily due to a decline of $6.3 million, net of taxes, in other comprehensive income, representing the decline in the market value of securities available for sale due to the effect of rising interest rates on the value of the Bank's bond portfolio. The decrease was also due to stock repurchases and dividends paid, partially offset by net income. During the second quarter of 2004, the Company continued its 5% stock repurchase program, purchasing 64,900 shares at an average price per share of $33.24. Asset Quality Non-performing loans were $3.2 million, or 0.40%, of total loans at June 30, 2004, as compared to $3.0 million, or 0.39%, and $3.2 million, or 0.40%, of total loans at March 31, 2004 and December 31, 2003, respectively. The ratio of loans delinquent and non-accrual to total loans measured 0.55% at June 30, 2004, as compared to 0.54% and 0.67% at March 31, 2004 and December 31, 2003, respectively, as the Bank continues to adhere to strict underwriting guidelines. Net loan charge-offs totaled $129,000 for the quarter ended June 30, 2004, compared to $367,000 and $903,000 in the first quarter of 2004 and the fourth quarter of 2003, respectively. The declining trend in net charge-offs resulted primarily from a decline in net consumer charge-offs. The allowance for loan losses totaled $9.2 million, representing 1.16% of total loans at June 30, 2004, compared to $9.0 million, or 1.18%, and $9.0 million, or 1.13%, of total loans at March 31, 2004 and December 31, 2003, respectively. Results of Operations Net interest income was $9.8 million for the second quarter of 2004, a decrease of $410,000 compared to the quarter ended March 31, 2004, and an increase of $319,000 compared to the quarter ended June 30, 2003. The Company's net interest margin was 3.19% for the second quarter of 2004 compared to 3.44% and 3.73% for the first quarter of 2004 and the second quarter of 2003, respectively. The decline in the margin compared to the first quarter 2004 was primarily attributed to heavy prepayment activity earlier in the second quarter on loans and securities and the continued repricing and origination of loans at lower yields. The lower margin for the second quarter of 2004 as compared to a year ago, resulted from the impact of a lower interest rate environment during 2003 and the execution of strategies in 2003, such as the sale and securitization of longer duration fixed-rate residential mortgages to better position the Bank for a potential rise in interest rates. 3 4 The provision for loan losses was $425,000 for the quarter ended June 30, 2004, an increase of $75,000, or 21.4%, as compared to the quarter ended March 31, 2004, and a decrease of $360,000, or 45.9%, as compared to the same quarter last year. The increase in the second quarter compared to the previous quarter was consistent with growth in the loan portfolio, especially in higher risk commercial and consumer loans, while the decrease compared to the same period last year was attributed to improvement in credit quality. Non-interest income was $2.0 million for the quarter ended June 30, 2004, an increase of $90,000, or 4.8%, compared to the quarter ended March 31, 2004, and an increase of $69,000, or 3.6%, compared to the quarter ended June 30, 2003. The increase as compared to the first quarter of 2004 was due to an increase in customer service fees and trust department fees and, to a lesser extent, loan fees and net gain on the sale of securities, partially offset by a decline in net loan sales gains and lower other income. Customer service fees increased due to an increase in activity in transaction deposit accounts and safe deposit box fees, while trust department fees rose due to an increase of $18.0 million and $42.0 million in assets under management from December 31, 2003 and June 30, 2003, respectively. The decrease in net loan sales gains resulted from no sales of one- to four- family fixed rate residential mortgage loans in the current quarter compared to $6.5 million in the previous quarter, while other income declined due to a higher level of cash surrender value earned on certain life insurance policies in the previous quarter than in the second quarter. The increase as compared to the same quarter last year was primarily due to an increase in trust department fees, gains on sale of securities and higher other income, partially offset by decreases in loan fees and net loan sales gains. This decrease in loan fees and net loan sales gains was due to lower residential loan originations and no loan sales in the second quarter compared to $8.3 million in the same quarter last year. The increase in other income was largely attributed to an increase in the income earned on bank-owned life insurance. Non-interest expense was $6.9 million for the quarter ended June 30, 2004, a $630,000, or 8.3%, decrease compared to non-interest expense of $7.6 million for the quarter ended March 31, 2004, and a $649,000, or 8.6%, decrease compared to non-interest expense of $7.6 million for the quarter ended June 30, 2003. The decline as compared to the first quarter of 2004 was primarily attributed to lower salary and benefit expense and lower occupancy and equipment expense. The lower occupancy and equipment expense was due to seasonally higher expenses in the previous quarter. The decrease in salary and benefits was largely associated with expenses that expectedly did not recur in the second quarter, such as employment taxes, certain retirement benefit charges and semi-annual director fees. Also, an increase in commercial loan originations contributed to a higher level of deferred salary expense, recorded in accordance with FASB 91. The decline compared to the same quarter last year was primarily due to a non-recurring interest charge of $15,000 ($10,000, net of taxes) on the dissolution of the Bank's REIT and non-recurring retirement benefit charges of $800,000 ($512,000, net of taxes) occurring in the quarter ended June 30, 2003. The Company's effective tax rate was 32.0% for the quarters ended June 30, 2004 and March 31, 2004. The Company expects its effective tax rate will be approximately 32.0% for the remainder of 2004. Michael P. Daly, President and Chief Executive Officer and Wayne F. Patenaude, Senior Vice President, Treasurer and Chief Financial Officer, will host a conference call at 10:00 A.M. (ET) on Friday, July 23, 2004. This conference call will include forward-looking information and may include other material information. Persons wishing to access the conference call may dial 1-800-289-0528 and use access code 178050. Materials related to the topics to be discussed in the conference call will be available on the Bank's Web site, www.berkshirebank.com, beginning at approximately 8:30 A.M. (ET) on July 23, - --------------------- 2004. Replays of the conference call will be available beginning July 23, 2004 at 1:00 P.M. (ET) through July 30, 2004 at 4:00 P.M. (ET) by dialing 1-888-203-1112 and using access code 178050. If you have difficulty accessing the material, please contact Rose Borotto at 413-236-3144. 4 5 Berkshire Hills Bancorp, Inc. is the holding company for Berkshire Bank. Established in 1846, Berkshire Bank is one of Massachusetts' oldest and largest independent banks and is the largest banking institution based in western Massachusetts. The Bank is headquartered in Pittsfield, Massachusetts with 11 branch offices serving communities throughout Berkshire County and a representative office in Albany, New York. The Bank is committed to continuing operation as an independent bank, delivering exceptional customer service and a broad array of competitively priced retail and commercial products to its customers. Statements contained in this news release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and expectations of management, as well as the assumptions made using information currently available to management. Since these statements reflect the views of management concerning future events, these statements involve risks, uncertainties and assumptions. These risks and uncertainties include among others: changes in market interest rates and general and regional economic conditions; changes in government regulations; changes in accounting principles; and the quality or composition of the loan and investment portfolios and other factors that may be described in the Company's quarterly reports on Form 10-Q for the quarters ended March 31, June 30 and September 30 and in its annual report on Form 10-K, each filed with the Securities and Exchange Commission, which are available at the Securities and Exchange Commission's internet Web site (www.sec.gov) and to which reference ----------- is hereby made. Therefore, actual future results may differ significantly from results discussed in these forward-looking statements. News Contact: Wayne F. Patenaude Senior Vice President, Treasurer and Chief Financial Officer 413-236-3195 5 6 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------------------------------------------- Unaudited At ----------------------------------------- June 30, March 31, December 31, 2004 2004 2003 - --------------------------------------------------------------------------------------------------------------------- (In thousands) ASSETS: Cash and due from banks $ 15,981 $ 14,273 $ 15,583 Short term investments 5,167 194 1,859 ----------- ----------- ----------- Total cash and cash equivalents 21,148 14,467 17,442 Securities available for sale, at fair value 394,469 395,443 307,425 Securities held to maturity, at amortized cost 27,435 33,790 36,903 Federal Home Loan Bank stock, at cost 16,898 15,055 12,923 Savings Bank Life Insurance stock, at cost 2,043 2,043 2,043 Loans held for sale -- 356 -- Loans 795,365 761,546 792,227 Allowance for loan losses (9,248) (8,952) (8,969) ----------- ----------- ----------- Net loans 786,117 752,594 783,258 Premises and equipment, net 13,137 12,967 12,626 Foreclosed real estate, net 25 25 -- Accrued interest receivable 5,292 5,437 5,080 Goodwill and other intangibles 5,763 10,182 10,233 Net deferred tax assets 3,999 546 1,725 Bank owned life insurance 7,912 7,817 7,721 Due from broker 458 -- 7,089 Other assets 11,391 12,775 14,080 ----------- ----------- ----------- TOTAL ASSETS $ 1,296,087 $ 1,263,497 $ 1,218,548 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits $ 847,403 $ 829,828 $ 830,244 Federal Home Loan Bank advances 321,722 299,100 251,465 Loans sold with recourse 191 382 473 Due to broker -- -- 5,646 Accrued expenses and other liabilities 4,716 4,275 5,293 ----------- ----------- ----------- Total liabilities 1,174,032 1,133,585 1,093,121 ----------- ----------- ----------- Minority interests -- 2,076 2,252 ----------- ----------- ----------- Stockholders' Equity: Preferred stock ($.01 par value; 1,000,000 shares -- -- -- authorized; none issued or outstanding) Common stock ($.01 par value; 26,000,000 shares authorized; shares issued: 7,673,761 at June 30, 2004, March 31, 2004 and December 31, 2003; shares outstanding: 5,871,261 at June 30, 2004, 5,935,061 at March 31, 2004 and 5,903,082 at December 31, 2003) 77 77 77 Additional paid-in capital 76,921 76,571 75,764 Unearned compensation (8,251) (8,669) (8,507) Retained earnings 90,114 88,212 86,276 Accumulated other comprehensive income 1,080 7,393 5,559 Treasury stock at cost (1,802,500 shares at June 30, 2004, 1,738,700 at March 31, 2004 and 1,770,679 at December 31, 2003) (37,886) (35,748) (35,994) ----------- ----------- ----------- Total stockholders' equity 122,055 127,836 123,175 ----------- ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,296,087 $ 1,263,497 $ 1,218,548 =========== =========== =========== 7 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Unaudited Three Months Ended Six Months Ended -------------------------- --------------------- June 30, June 30, June 30, June 30, 2004 2003 2004 2003 - ---------------------------------------------------------------------------------------------------------- (In thousands, except per share data) INTEREST AND DIVIDEND INCOME: Bond interest $ 4,148 $ 1,551 $ 7,986 $ 3,123 Stock dividends 211 214 608 478 Short-term investment interest 1 14 17 98 Loan interest 10,377 12,360 21,116 24,341 -------- -------- -------- -------- TOTAL INTEREST AND DIVIDEND INCOME 14,737 14,139 29,727 28,040 -------- -------- -------- -------- INTEREST EXPENSE: Interest on deposits 3,026 3,613 6,112 7,371 Interest on FHLB advances and other borrowings 1,959 1,093 3,699 2,156 -------- -------- -------- -------- TOTAL INTEREST EXPENSE 4,985 4,706 9,811 9,527 -------- -------- -------- -------- NET INTEREST INCOME 9,752 9,433 19,916 18,513 PROVISION FOR LOAN LOSSES 425 785 775 1,110 -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,327 8,648 19,141 17,403 -------- -------- -------- -------- NON-INTEREST INCOME: Customer service fees 634 619 1,158 1,175 Trust Department fees 648 554 1,225 990 Loan fees 103 147 182 195 Gain on sale of securities, net 377 317 702 1,157 Gain(loss) on sales of loans, net (6) 138 84 138 Other income 209 121 489 181 -------- -------- -------- -------- TOTAL NON-INTEREST INCOME 1,965 1,896 3,840 3,836 -------- -------- -------- -------- NON-INTEREST EXPENSE: Salaries and benefits 3,890 4,712 8,493 8,700 Occupancy and equipment 975 913 2,034 1,962 Marketing and advertising 270 139 427 242 Data processing 331 281 725 546 Professional services 357 261 785 482 Office supplies 124 140 262 327 Foreclosed real estate and other loans, net 171 286 254 407 Other expenses 815 850 1,517 1,797 -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE 6,933 7,582 14,497 14,463 -------- -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 4,359 2,962 8,484 6,776 Provision for income taxes 1,402 786 2,728 2,678 -------- -------- -------- -------- INCOME FROM CONTINUING OPERATIONS 2,957 2,176 5,756 4,098 -------- -------- -------- -------- Loss from discontinued operations (386) (57) (653) (208) (including loss on sale of $75) Income tax benefit (131) (19) (222) (70) -------- -------- -------- -------- NET LOSS FROM DISCONTINUED OPERATIONS (255) (38) (431) (138) -------- -------- -------- -------- NET INCOME $ 2,702 $ 2,138 $ 5,325 $ 3,960 ======== ======== ======== ======== Earnings per share: Basic 0.51 0.40 1.01 0.74 Diluted 0.47 0.38 0.93 0.69 Weighted average shares outstanding: Basic 5,292 5,291 5,291 5,355 Diluted 5,725 5,687 5,742 5,733 8 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------------------------------------------------- Unaudited Quarters Ended ----------------------------------------------------------- June 30, Mar. 31, Dec. 31, Sept. 30, June 30, 2004 2004 2003 2003 2003 - --------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) INTEREST AND DIVIDEND INCOME: Residential mortgage $ 2,567 $ 2,986 $ 3,793 $ 4,099 $ 4,564 Commercial real estate 3,389 3,225 2,969 2,760 2,627 Commercial 2,135 2,226 2,312 2,401 2,474 Indirect auto loans 1,589 1,610 1,665 1,945 1,836 Other consumer 697 692 695 703 859 -------- -------- -------- -------- -------- Total interest on loans 10,377 10,739 11,434 11,908 12,360 Securities 4,296 4,060 2,905 1,886 1,706 Federal Home Loan Bank 63 175 65 59 59 Short-term investments 1 16 6 5 14 -------- -------- -------- -------- -------- TOTAL INTEREST AND DIVIDEND INCOME 14,737 14,990 14,410 13,858 14,139 -------- -------- -------- -------- -------- INTEREST EXPENSE: Interest on deposits 3,026 3,088 3,148 3,343 3,613 Interest on FHLB advances and other borrowings 1,959 1,740 1,518 1,206 1,093 -------- -------- -------- -------- -------- TOTAL INTEREST EXPENSE 4,985 4,828 4,666 4,549 4,706 -------- -------- -------- -------- -------- NET INTEREST INCOME 9,752 10,162 9,744 9,309 9,433 PROVISION (CREDIT) FOR LOAN LOSSES 425 350 (225) 575 785 -------- -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR LOAN LOSSES 9,327 9,812 9,969 8,734 8,648 -------- -------- -------- -------- -------- NON-INTEREST INCOME: Customer service fees 634 524 557 568 619 Trust Department fees 648 577 527 573 554 Loan fees 103 79 49 142 147 Gain on sale of securities, net 377 325 1,564 356 317 Net loan sales gains (losses), net (6) 90 (2,094) 102 138 Loss on impairment of other assets -- -- (206) -- -- Other non-interest income 209 280 303 171 121 -------- -------- -------- -------- -------- TOTAL NON-INTEREST INCOME 1,965 1,875 700 1,912 1,896 -------- -------- -------- -------- -------- NON-INTEREST EXPENSE: Salaries and benefits 3,890 4,603 3,589 3,876 4,712 Occupancy and equipment 975 1,059 942 896 913 Professional and outside service fees 357 428 485 260 261 Marketing and advertising 270 157 299 137 139 Data processing 331 394 284 374 281 Foreclosed real estate and other loans, net 171 83 307 333 286 Other non-interest expense 939 839 1,000 995 990 -------- -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE 6,933 7,563 6,906 6,871 7,582 -------- -------- -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 4,359 4,124 3,763 3,775 2,962 Income tax credit resulting from REIT disallowance -- -- -- -- (244) Provision for income taxes 1,402 1,325 1,124 1,360 1,030 -------- -------- -------- -------- -------- INCOME FROM CONTINUING OPERATIONS 2,957 2,799 2,639 2,415 2,176 -------- -------- -------- -------- -------- Loss from discontinued operations (386) (267) (73) (1) (57) Income tax benefit (131) (91) (25) -- (19) -------- -------- -------- -------- -------- NET LOSS FROM DISCONTINUED OPERATIONS (255) (176) (48) (1) (38) -------- -------- -------- -------- -------- NET INCOME $ 2,702 $ 2,623 $ 2,591 $ 2,414 $ 2,138 ======== ======== ======== ======== ======== Basic earnings per share $ 0.51 $ 0.50 $ 0.50 $ 0.46 $ 0.40 Diluted earnings per share $ 0.47 $ 0.46 $ 0.45 $ 0.43 $ 0.38 Average shares: Basic 5,292 5,285 5,222 5,196 5,291 Diluted 5,725 5,757 5,717 5,655 5,687 9 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES ======================================================================================================================== Unaudited At or For the Period Ended - ------------------------------------------------------------------------------------------------------------------------ June 30, Mar. 31, Dec. 31, Sept. 30, June 30, NON-PERFORMING ASSETS 2004 2004 2003 2003 2003 - ------------------------------------------------------------------------------------------------------------------------ (In thousands) Non-accrual loans: Residential mortgage $ 266 $ 341 $ 348 $ 221 $ 213 Commercial real estate 934 484 496 154 165 Commercial 1,609 1,738 1,887 2,578 2,490 Indirect automobile loans 350 395 451 696 710 Other consumer 11 14 17 2 10 -------- -------- -------- -------- -------- Total non-accrual loans $ 3,170 $ 2,972 $ 3,199 $ 3,651 $ 3,588 Real estate owned ("REO"), net of allowance for losses 25 25 -- -- -- Total non-performing assets $ 3,195 $ 2,997 $ 3,199 $ 3,651 $ 3,588 Non-performing loans as a percentage of total loans 0.40% 0.39% 0.40% 0.46% 0.44% Non-performing assets as a percentage of total loans and REO 0.40% 0.39% 0.40% 0.46% 0.44% Non-performing assets to total assets 0.25% 0.24% 0.26% 0.31% 0.32% ======================================================================================================================== PROVISION (CREDIT) AND ALLOWANCE FOR LOAN LOSSES ======================================================================================================================== Balance at beginning of period $ 8,952 $ 8,969 $ 10,097 $ 10,282 $ 10,349 Charge-offs (390) (628) (1,074) (1,015) (1,164) Recoveries 261 261 171 255 312 -------- -------- -------- -------- -------- Net loan charge-offs (129) (367) (903) (760) (852) Provision (credit) for loan losses 425 350 (225) 575 785 -------- -------- -------- -------- -------- Balance at end of period $ 9,248 $ 8,952 $ 8,969 $ 10,097 $ 10,282 ======== ======== ======== ======== ======== Allowance for loan losses as a percentage of non-performing loans 311.17% 301.21% 280.37% 276.55% 286.57% Allowance for loan losses as a percentage of total loans 1.16% 1.18% 1.13% 1.26% 1.25% ======================================================================================================================== NET LOAN (CHARGE-OFFS) RECOVERIES ======================================================================================================================== Residential mortgage $ -- $ -- $ -- $ -- $ -- Commercial real estate -- -- -- -- -- Commercial loans 23 96 (110) 21 (26) Consumer loans (1) (152) (463) (793) (781) (826) -------- -------- -------- -------- -------- Total $ (129) $ (367) $ (903) $ (760) $ (852) ======== ======== ======== ======== ======== Net charge-offs as a percentage of total loans 0.02% 0.05% 0.11% 0.09% 0.10% ======================================================================================================================== AVERAGE FICO SCORES OF CONSUMER LOANS (1) 699 695 691 674 670 ======================================================================================================================== (1) Consists primarily of automobile loans 10 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES SELECTED FINANCIAL RATIOS - ------------------------------------------------------------------------------------------------------------------------------------ Unaudited At or for the three months ended -------------------------------------------------------------------------- June 30, Mar. 31, Dec. 31, Sept. 30, June 30, 2004 2004 2003 2003 2003 ---- ---- ---- ---- ---- Performance Ratios (1): Return on average assets 0.84% 0.84% 0.86% 0.86% 0.80% Return on average stockholders' equity 8.40% 8.39% 8.49% 8.10% 7.16% Return on average tangible stockholders' equity 8.69% 9.14% 9.27% 8.87% 7.85% Net interest margin 3.19% 3.44% 3.42% (2) 3.51% 3.73% Non-interest income to average assets (3) 0.61% (4) 0.60% (4) 0.23% (5) 0.68% (4) 0.71% (4) Non-interest expense to average assets (6) 2.15% 2.42% 2.29% (7) 2.44% 2.83% (8) Average earning assets to average assets 94.64% 94.46% 94.28% 94.14% 95.09% Efficiency ratio (9) 61.14% 64.58% 62.86% (10) 63.25% 61.72% (11) Capital ratios Stockholders' equity to total assets 9.42% 10.12% 10.11% 10.30% 10.57% Tier I capital to average adjusted assets 8.98% 8.89% 8.97% 9.36% 9.66% Tier I capital to risk weighted assets 12.77% 12.71% 12.59% 12.51% 12.06% Total capital to risk weighted assets 14.15% 14.15% 14.08% 14.16% 13.75% Other data Book value per share $ 20.79 $ 21.54 $ 20.86 $ 20.46 $ 20.14 Tangible book value per share $ 19.81 $ 19.82 $ 19.13 $ 18.71 $ 18.38 Stock price: High $ 37.10 $ 38.61 $ 37.40 $ 33.90 $ 28.40 Low $ 32.69 $ 34.46 $ 33.55 $ 28.10 $ 23.10 Close $ 37.10 $ 34.90 $ 36.20 $ 33.69 $ 28.40 - ------------------------------------------------------ (1) Ratios are annualized. (2) Excluding the forfeiture of $245,000 in interest income upon the sale of sub-prime automobile loans in December 2003, the net interest margin would have been 3.50%. (3) Excludes non-interest income from discontinued operations. (4) Excluding the gain on the sale of securities of $377,000, $325,000, $356,000 and $317,000 in the quarters ended June 2004, March 2004, September 2003 and June 2003, respectively, the ratios would have been 0.49%, 0.50%, 0.55%, and 0.59%, respectively. (5) Excluding the gain on sale of securities of $1.6 million, the $2.2 million loss on the sale of sub-prime automobile loans, and the loss of $206,000 on the impairment of other assets - repossessed vehicle inventory, the ratio would have been 0.51%. (6) Excludes non-interest expense from discontinued operations. (7) Excluding $363,000 representing the partial reversal of an $800,000 retirement benefit charge that was recorded in the second quarter of 2003, the ratio would have been 2.41%. (8) Excluding the retirement benefit charges of $800,000 and $15,000 representing the partial reversal of a $44,000 interest charge associated with the disallowance of the dividend received deduction from the Bank's REIT that was recorded in the first quarter of 2003, the ratio would have been 2.53%. (9) Efficiency ratio is non-interest expenses, less non-recurring items, divided by the total of net interest income, plus non-interest income, less securities gains, less non-recurring items. The ratio excludes discontinued operations. (10) Excludes the partial reversal of retirement benefit charges of $363,000 from non-interest expenses, $2.2 million of loss on the sale of sub-prime automobile loans, $245,000 in forfeiture of interest income associated with the sale of sub-prime automobile loans and the loss on the impairment of other assets - repossessed vehicle inventory of $206,000. (11) Excludes the retirement benefit charges of $800,000 and the $15,000 representing the partial reversal of a $44,000 interest charge associated with the Bank's REIT that was recorded in the first quarter of 2003 from non-interest expenses. 11 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS Unaudited Quarters Ended June 30, 2004 ---------------------------------------- Average Yield/ Balance Interest Rate (1) - ---------------------------------------------------------------------------- (In thousands) Earning assets: Short-term investments $ 1,031 $ 1 0.39% Securities (2) 425,658 4,296 4.04% Federal Home Loan Bank 14,925 63 1.69% Loans: Residential mortgage 216,164 2,567 4.75% Commercial real estate 237,727 3,389 5.70% Commercial 159,241 2,135 5.36% Indirect auto loans 106,883 1,589 5.95% Other consumer 59,556 695 4.67% ---------- ---------- Total loans 779,571 10,375 5.32% ---------- ---------- Total earning assets 1,221,185 $ 14,735 4.83% ========== Other assets 69,166 ---------- Total assets $1,290,351 ---------- Funding liabilities: Deposits: Non-interest-bearing deposits $ 102,881 Savings, NOW and money market 419,222 825 0.79% ---------- ---------- Total core deposits 522,103 825 0.63% Certificates of deposits 322,048 2,200 2.73% ---------- ---------- Total deposits 844,151 3,025 1.43% ---------- ---------- Borrowings: Federal Home Loan Bank advances 310,935 1,959 2.52% ---------- ---------- Total funding liabilities 1,155,086 $ 4,984 1.73% ========== Other liabilities 4,619 ---------- Total liabilities 1,159,705 Minority Interest 1,977 Stockholders' Equity 128,669 ---------- Total liabilities and equity $1,290,351 ---------- Net interest income/spread $ 9,751 3.10% ---------- Net interest margin 3.19% (1) Average yields earned and rates paid are annualized. (2) Average balances and yields for securities available for sale are based on amortized cost. 12 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS Unaudited Quarters Ended March 31, 2004 -------------------------------------- Average Yield/ Balance Interest Rate (1) - ---------------------------------------------------------------------------- (In thousands) Earning assets: Short-term investments $ 6,307 $ 16 1.01% Securities (2) 388,145 4,060 4.18% Federal Home Loan Bank 13,846 175 5.06% Loans: Residential mortgage 232,001 2,986 5.15% Commercial real estate 219,991 3,225 5.86% Commercial 163,236 2,226 5.45% Indirect auto loans 99,754 1,610 6.46% Other consumer 57,775 692 4.79% ----------- --------- Total loans 772,757 10,739 5.56% ----------- --------- Total earning assets 1,181,055 $ 14,990 5.08% ========= Other assets 69,308 ----------- Total assets $ 1,250,363 ----------- Funding liabilities: Deposits: Non-interest-bearing deposits $ 97,964 Savings, NOW and money market 427,388 855 0.80% ----------- --------- Total core deposits 525,352 855 0.65% Certificates of deposits 318,555 2,233 2.80% ----------- --------- Total deposits 843,907 3,088 1.46% ----------- --------- Borrowings: Federal Home Loan Bank advances 274,054 1,740 2.54% ----------- --------- Total funding liabilities 1,117,961 $ 4,828 1.73% ========= Other liabilities 5,229 ----------- Total liabilities 1,123,190 Minority Interest 2,130 Stockholders' Equity 125,043 ----------- Total liabilities and equity $ 1,250,363 ----------- Net interest income/spread $ 10,162 3.35% --------- Net interest margin 3.44% (1) Average yields earned and rates paid are annualized. (2) Average balances and yields for securities available for sale are based on amortized cost. 13 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS Unaudited Quarters Ended December 31, 2003 -------------------------------------- Average Yield/ Balance Interest Rate (1) - ---------------------------------------------------------------------------- (In thousands) Earning assets: Short-term investments $ 2,853 $ 6 0.84% Securities (2) 314,070 2,905 3.70% Federal Home Loan Bank 12,166 65 2.14% Loans: Residential mortgage 287,518 3,793 5.28% Commercial real estate 193,728 2,969 6.13% Commercial 167,427 2,312 5.52% Indirect auto loans 103,821 1,665 6.41% Other consumer 57,013 695 4.88% ---------- ---------- Total loans 809,507 11,434 5.65% ---------- ---------- Total earning assets 1,138,596 $ 14,410 5.06% ========== Other assets 69,076 ---------- Total assets $1,207,672 ---------- Funding liabilities: Deposits: Non-interest-bearing deposits $ 98,392 Savings, NOW and money market 415,486 814 0.78% ---------- ---------- Total core deposits 513,878 814 0.63% Certificates of deposits 321,732 2,334 2.90% ---------- ---------- Total deposits 835,610 3,148 1.51% ---------- ---------- Borrowings: Federal Home Loan Bank advances 236,534 1,518 2.57% ---------- ---------- Total funding liabilities 1,072,144 $ 4,666 1.74% ========== Other liabilities 11,249 ---------- Total liabilities 1,083,393 Minority Interest 2,261 Stockholders' Equity 122,018 ---------- Total liabilities and equity $1,207,672 ---------- Net interest income/spread $ 9,744 3.32% ---------- Net interest margin 3.42% (1) Average yields earned and rates paid are annualized. (2) Average balances and yields for securities available for sale are based on amortized cost. 14 BERKSHIRE HILLS BANCORP, INC. AND SUBSIDIARIES AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS Unaudited Quarters Ended June 30, 2003 ----------------------------------------- Average Yield/ Balance Interest Rate (1) - ------------------------------------------------------------------------------- (In thousands) Earning assets: Short-term investments $ 2,834 $ 14 1.98% Securities (2) 186,975 1,705 3.65% Federal Home Loan Bank 7,496 60 3.20% Loans: Residential mortgage 324,366 4,564 5.63% Commercial real estate 164,997 2,627 6.37% Commercial 171,007 2,474 5.79% Indirect auto loans 93,772 1,836 7.83% Other consumer 60,316 859 5.70% ------------- ----------- Total loans 814,458 12,360 6.07% ------------- ----------- Total earning assets 1,011,763 $ 14,139 5.59% =========== Other assets 60,165 ------------- Total assets $ 1,071,928 ------------- Funding liabilities: Deposits: Non-interest-bearing deposits $ 86,299 - Savings, NOW and money market 385,992 964 1.00% ------------- ----------- Total core deposits 472,291 964 0.82% Certificates of deposits 332,879 2,649 3.18% ------------- ----------- Total deposits 805,170 3,613 1.79% ------------- ----------- Borrowings: Federal Home Loan Bank advances 136,685 1,093 3.20% ------------- ----------- Total funding liabilities 941,855 $ 4,706 2.00% =========== Other liabilities 8,376 ------------- Total liabilities 950,231 Minority Interest 2,339 Stockholders' Equity 119,358 ------------- Total liabilities and equity $ 1,071,928 ------------- Net interest income/spread $ 9,433 3.59% ----------- Net interest margin 3.73% (1) Average yields earned and rates paid are annualized. (2) Average balances and yields for securities available for sale are based on amortized cost.